President Barack Obama for the second time this week criticized the response of European governments to the continent’s debt crisis, saying the turmoil continues to be a drag on the U.S. economy.
“Some of the challenges that we’ve had over the last several months actually have to do with the fact that, in Europe, we haven’t seen them deal with their banking system and their financial system as effectively as they needed to,” Obama said yesterday in response to a question about U.S. economic growth at a roundtable discussion on Hispanic issues at the White House.
Obama didn’t specify what steps should be taken.
Amid concern that a default by Greece could plunge the global economy into a recession, the administration has stepped up public pressure on European leaders to resolve the 18-month sovereign-debt crisis. The issue will be at the top of the agenda when Obama joins other leaders from the Group of 20 nations for a Nov. 3-4 summit in France.
Obama’s remarks yesterday followed comments he made Sept. 26 that Europe hadn’t “fully healed from the crisis back in 2007 and never fully dealt with all the challenges to their banking system.”
“So they’re going through a financial crisis that is scaring the world,” he said at a town hall event in Mountain View, California, where he was promoting his plan to revive U.S. economic growth and hiring.
At the annual meeting of the International Monetary Fund and World Bank on Sept. 24 in Washington, Treasury Secretary Timothy F. Geithner warned that failure to combat the Greek-led turmoil could lead to “cascading default, bank runs and catastrophic risk.” He urged governments to work with the European Central Bank to beef up the euro-zone bailout fund.
“It would be safe to say they’ve ratcheted it up,” Pierre Ellis, senior global economist at the research firm Decision Economics in New York, said of recent comments by Obama and Geithner.
“What everybody fears is a sort of Round II of a credit crunch,” Ellis said. Europe may be “very vulnerable to problems with debt over there and that, in turn, causing problems for our banks. And, of course, the White House is certainly not averse to finding reasons for problems in our economy.”
As investors watched for signs of progress in Europe’s efforts to deal with the debt crisis, U.S. stocks halted a three-day rally and the euro reversed an early gain versus the dollar. Treasuries trimmed losses as the 10-year note’s yield headed for its biggest increase over four days since January 2009.
The Standard & Poor’s 500 Index lost 2.1 percent to 1,151.26 in New York yesterday after climbing 0.8 percent earlier and rallying 4.1 percent over the previous three sessions. The euro weakened 0.3 percent to $1.3548, erasing a 0.8 percent advance. Ten-year yields rose two basis points to 2.01 percent and have climbed 27 points in four days.
The administration has been in contact with European governments, urging officials “at the presidential level, at the ministerial level” to “take forceful and direct action” to deal with the crisis, White House press secretary Jay Carney said at a briefing yesterday after Obama spoke.
While the debt situation in Europe is “certainly a matter of concern,” Obama administration officials continue to believe that governments there have the “financial wherewithal” to deal with the crisis, Carney said.
Experts from the European Commission, the European Central Bank and the International Monetary Fund are scheduled to return to Athens today as officials race to put in place measures to contain fallout from Greece. They will resume a review of whether Greece has met conditions for the next slice of the initial, 110 billion euro ($150 billion) bailout package engineered last year.
Obama is facing re-election next year and the economy will be the top issue in the presidential contest and campaigns for Congress.
The Office of Management and Budget, in an August update of economic administration forecasts, projected the U.S. economy will grow at a sluggish 1.7 percent rate this year and the jobless rate will average 9.1 percent. At the start of the year, the White House forecast a growth rate of 2.7 percent.
Growth will pick up in 2012, with the economy expanding 2.6 percent on a year-over-year basis, the OMB said.
The International Monetary Fund cut its forecast for global growth and predicted “severe” repercussions if Europe fails to contain its debt crisis or U.S. policy makers deadlock over a fiscal plan.
Pressure from the U.S. has caused friction with Europe. Austrian Finance Minister Maria Fekter said earlier this month that she found it “peculiar” to be lectured by the U.S., a country with higher aggregate debt than the euro area.
The OMB forecasts the federal budget deficit will be $1.3 trillion for the fiscal year that ends Sept. 30 -- 8.8 percent of gross domestic product -- and $956 billion in fiscal 2012. The budget office’s estimates total deficits over the next decade at $5.75 trillion from 2012-2021.
Obama’s proposals for cutting the long-term U.S. debt have run into resistance from Republicans, who control the House of Representatives and oppose raising taxes to narrow the deficit.
After partisan disputes dragged out negotiations in July over raising the government’s borrowing authority, Standard & Poor’s lowered the U.S.’s credit rating to AA+ from AAA on Aug. 5. Moody’s Investors Service and Fitch Ratings have affirmed their top rankings on the U.S.